Mike Shedlock

Reader "JB" thinks I am blaming Germany for what is happening. That's not exactly correct, but let's take a look at what "JB" has to say via email.

Hi Mish,

I read your blog daily. We are generally on the same page. We even agree that in all probability the eurozone will break up. However, You cannot blame the Germany, the German government, or the German people for doing the right thing. Germans can accept austerity. The phrase "tightening the belt" is an axiom in the German language. ....

Hello JB, I think you misunderstand my message. I am not biased against Germany, and I am in favor of "austerity".

By "austerity" I mean shrinkage of public sector jobs and pensions, and liberalization of work rules.

I am against tax hikes, especially those imposed on Spain, Greece, and Portugal by the nannycrats in Brussels. What the nannycrats call "austerity" is nothing more than devastating tax hikes coupled with minimal, if any work rule reforms.

My message is primarily a function of math.

Eurozone Math

  • Germany was the primary beneficiary of the ECB's "one size fits Germany" interest rate policy.
  • It is mathematically impossible for every country to be an exporter like Germany
  • It is mathematically impossible for one interest rate to work when there is a multitude of fiscal policies
  • It is mathematically impossible for the euro to survive without a transfer mechanism of some sort from Germany to peripheral Europe, and Germany will not allow any transfer mechanisms
  • It is mathematically impossible within the realm of the euro for Spain to be more like Germany, unless Germany is less like Germany
  • Germany has ruled out everything that could possibly make the eurozone work.

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.